Pinnacle West Capital Corporation · NYSE:PNW
Pinnacle West Capital — Q1 2019 Earnings Presentation
25 slides from Pinnacle West Capital's earnings presentation, May 1, 2019
Slide 1: Powering Growth, Delivering Value: First Quarter 2019 Results
POWERING GROWTH DELIVERING VALUE First Quarter 2019 Results May 1, 2019
Slide 2: Forward Looking Statements and Non-GAAP Financial Measures
FORWARD LOOKING STATEMENTS AND NON-GAAP FINANCIAL MEASURES This presentation contains forward-looking statements based on current expectations, including statements regarding our earnings guidance and financial outlook and goals. These forward-looking statements are often identified by words such as
Slide 3: EPS Variances
EPS VARIANCES 1st Quarter 2019 vs. 1st Quarter 2018 Adjusted O&M1 D&A Adjusted Interest, Pension & $0.09 $(0.03) Other net of OPEB Taxes AFUDC2 Non-service $(0.01) $(0.01) Credits, net Adjusted $(0.05) Gross Adjusted Adjusted Income Margin1 Other, net2 Taxes $0.14 $(0.01) $0.01 $0.16 Gross Margin We
Slide 4: Economic Indicators
ECONOMIC INDICATORS Arizona’s focus on economic development continues to support growth in the state Year over Year Employment Growth U.S. Phoenix Arizona is the 4th fastest-growing state in the U.S. 5% according to new Census data.1 4% 3% 2018 – APS partnered with Greater Phoenix Economic Council a
Slide 5: Balance Sheet Strength
BALANCE SHEET STRENGTH Long-Term Debt Maturity Schedule $ in millions Credit Ratings2 $1,000 • APS Senior Unsecured: A- or equivalent ratings or better at S&P, Moody’s and Fitch $800 • PNW Senior Unsecured: BBB+ or equivalent ratings or better at S&P, Moody’s and Fitch $450 $600 2019 Major Financing
Slide 6: 2019 EPS Guidance
2019 EPS GUIDANCE Key Factors & Assumptions as of May 1, 2019 2019 Adjusted gross margin1 (operating revenues, net of fuel and $2.50 – $2.56 billion purchased power expenses) • Retail customer growth about 1.5–2.5% • Weather-normalized retail electricity sales volume about 1-2% higher compared to pr
Slide 7: Financial Outlook
FINANCIAL OUTLOOK Key Factors & Assumptions as of May 1, 2019 Gross Margin – Customer and Sales Growth (2019-2021) Assumption Impact Retail customer growth • Expected to average about 1.5-2.5% annually • Strength in Arizona and U.S. economic conditions Weather-normalized retail electricity sales vol
Slide 8: Rate Base
RATE BASE APS’s revenues come from a regulated retail rate base and meaningful transmission business APS Rate Base Growth Total Approved Rate Base Year-End Generation & Distribution Transmission ACC FERC Long-term Rate Base Guidance: 17% 6-7% Average Annual Growth $2.0 83% $1.5 ACC FERC Rate Effecti
Slide 9: Operations & Maintenance
OPERATIONS & MAINTENANCE Goal is to keep O&M per kwh flat, adjusted for planned outages $ in millions $933 $858 74 $865 - $885 $848 63 50 - 60 72 859 776 795 815 - 825 2016 2017 2018 2019E 1 PNW Consolidated ex RES/DSM Planned Fleet Outages 1 Excludes RES/DSM of $83 million in 2016, $91 million in 2
Slide 10: 2019 Planned Outage Schedule
2019 PLANNED OUTAGE SCHEDULE Coal, Nuclear, and Large Gas Planned Outages Q1 Q2 Q4 Estimated Estimated Estimated Plant Unit Duration Plant Unit Duration in Plant Unit Duration in Days Days in Days Four Corners 4 21 Palo Verde 1 30 Palo Verde 3 44 Four West Corners 5 21 Cholla* 1 49 Phoenix 4 62 Chol
Slide 11: APS Capital Expenditures
APS CAPITAL EXPENDITURES Capital expenditures will support our growing customer base and utilization of advanced technology $ in millions $1,600 PROJECTED $1,472 $1,400 $105 $1,237 $1,266 $71 $1,202 $1,200 $119 $117 $16 $41 $187 $31 $425 Traditional Generation 1 $1,000 New Gas Generation $112 $247 $
Slide 12: Distribution Grid Investments
DISTRIBUTION GRID INVESTMENTS Grid Operations and Investment Projected to be $1.5 billion from 2019-2021 Customer Growth Grid Modernization Run and Maintain Approximately 50% of distribution capex Approximately 9% of distribution capex Approximately 41% of distribution capex Line Extensions for new
Slide 13: Clean Energy Investments
• . CLEAN ENERGY INVESTMENTS Plans to Invest in 950 MW of New Clean Technology by 2025 2018 Battery Storage RFP • 141 MW located on six APS solar plant sites • Utility owned • Anticipated in-service by mid-2020 2018 Peaking Capacity RFP • 150 MW of battery storage • 20 year PPA contracts beginning J
Slide 14: Appendix
APPENDIX POWERING GROWTH - DELIVERING VALUE | 14
Slide 15: Tax Reform
TAX REFORM Customer Rate Reductions ACC – TAX EXPENSE ADJUSTOR MECHANISM: • PHASE I: The ACC approved $119 million annual rate reduction reflecting the lower federal tax rate. Effective for the March 2018 billing cycle • PHASE II: The ACC approved an additional $86.5 million rate reduction to return
Slide 16: Ocotillo Modernization Project & Four Corners SCRs
OCOTILLO MODERNIZATION PROJECT & FOUR CORNERS SCRs • Included in the 2017 Rate Review Order1, APS has been granted Accounting Deferral Orders for two large generation-related capital investments – Ocotillo Modernization Project: Retiring two aging, steam-based, natural gas units, and replacing with
Slide 17: Four Corners SCR Step Increase
FOUR CORNERS SCR STEP INCREASE The Administrative Law Judge issued a Recommended Opinion and Order on November 27, 20181 Key Components of APS’s Filed Request Financial Cost of Capital Bill Impact • Consistent with prior • 7.85% Return on Rate Base2 • Rate rider applied as a disclosed estimates – We
Slide 18: Residential PV Applications
Residential DG (MWdc) Annual Additions RESIDENTIAL PV APPLICATIONS1 133 151 133 57 74 30 2014 2015 2016 2017 2018 2019 YTD 4,000 3718 3432 3,500 3,000 2464 2,500 2143 1944 2033 2,000 1818 1561 1930 1602 1426 1413 1442 1434 1,500 1359 1291 1364 1283 1153 1123 1001 1131 1,000 1267 1252 838 850 939 769
Slide 19: Gross Margin Effects of Weather
GROSS MARGIN EFFECTS OF WEATHER Variances vs. Normal $ in millions pretax $25 $20 $15 $10 14 $5 9 8 $0 $(5) $(10) (12) $(15) $(20) (23) $(25) $(30) Q1 Q2 Q3 Q4 Q1 2018 2019 $(13) Million $9 Million All periods recalculated to current 10-year rolling average (2007 – 2016) First Quarter 2019 | 19
Slide 20: Renewable Energy and Demand Side Management Expenses
RENEWABLE ENERGY AND DEMAND SIDE MANAGEMENT EXPENSES1 $ in millions pretax Renewable Energy Demand Side Management $40 $30 $10 $12 $20 $14 $11 $9 $10 $21 $17 $12 $13 $9 $0 Q1 Q2 Q3 Q4 Q1 2018 2019 $104 Million $24 Million 1 Renewable energy and demand side management expenses are offset by adjustmen
Slide 21: 2019 Key Dates
2019 KEY DATES ACC Key Dates / Docket # Q1 Q2 Q3 Q4 Power Supply Adjustor (PSA) Implemented: Feb 1 E-01345A-16-0036 Lost Fixed Cost Recovery 2018 LFCR approved 2019 LFCR Filed: E-01345A-16-0036 Feb 15 Transmission Cost Adjustor To be filed: May 15 E-01345A-16-0036 Implementation: Jun 1 2020 DSM/EE I
Slide 22: Non-GAAP Measure Reconciliation
NON-GAAP MEASURE RECONCILIATION Three Months Ended March 31, Four Four Income Corners Income tax Corners tax Debt expense at Debt expense at RES/ Return statutory 2019 RES/ Return statutory 2018 EPS $ in millions pretax, except per share amounts 20191 DSM Deferral 2 rate Adjusted 20181 DSM Deferral
Slide 23: Non-GAAP Measure Reconciliation
NON-GAAP MEASURE RECONCILIATION 2019 Guidance $ in millions pretax Operating revenues1 $ 3,625 - $ 3,695 Fuel and purchased power expenses1 (1,045) - (1,055) Gross margin 2,580 - 2,640 Adjustments: Renewable energy and demand side management programs (80) - (80) Adjusted gross margin $ 2,500 - $ 2,5
Slide 24: Consolidated Statistics
CONSOLIDATED STATISTICS 3 Months Ended March 31, 2019 2018 Incr (Decr) ELECTRIC OPERATING REVENUES (Dollars in Millions) Retail Residential $ 352 $ 317 35 Business 333 343 (11) Total Retail 684 660 24 Sales for Resale (Wholesale) 36 12 24 Transmission for Others 15 15 0 Other Miscellaneous Services
Slide 25: Consolidated Statistics
CONSOLIDATED STATISTICS 3 Months Ended March 31, 2019 2018 Incr (Decr) ENERGY SOURCES (GWH) Generation Production Nuclear 2,512 2,479 33 Coal 1,773 1,099 674 Gas, Oil and Other 1,848 1,646 202 Renewables 118 131 (13) Total Generation Production 6,252 5,355 897 Purchased Power - Conventional 224 250
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